Lockheed Martin Corp.
LMT -0.46%
said Tuesday that it expects to return to growth in 2016 even if lawmakers don’t reverse the budget cuts that would trim Pentagon spending over the next two years.

Chief Executive
Marillyn Hewson
also signaled the world’s largest defense contractor by sales is prepared to take on debt to finance acquisitions, while reaffirming a commitment to continue the buybacks and dividend increases that have helped its stock more than double over the past two years.

Lockheed’s organic sales have fallen over the past three years and are expected to decline again in 2015 as the impact of Pentagon cuts continues, and it joins smaller rival
Raytheon Co.
in forecasting a return to growth in 2016.

Ms. Hewson also said a recent visit to the Middle East indicated that customers for its missile defense systems and fighter jets didn’t plan to pare spending, even after the sharp fall in oil prices.

“We’re not really seeing a pullback on their expenditure on national security,” she said on a post-earnings’ call.

Her comments came as Lockheed reported an 85% rise in fourth-quarter profit that fell shy of analysts’ expectations. Its 2015 guidance was also below consensus, though Lockheed has a history of providing conservative January forecasts.

Its shares were recently down 1.8% at $192.24.

Lockheed and its peers have cut jobs and other costs to adjust to lower Pentagon spending, while lower pension costs have boosted cash flow, most of which has been returned to shareholders.

The company spent around $900 million on acquisitions last year, mainly small bolt-on deals in areas such as cybersecurity and commercial aerospace.

The drop in U.S. spending over the past three years hasn’t triggered the wave of consolidation that followed the downturn of the 1990s, and executives continue to point to uncertainty over the budget as the main barrier to larger deals.

Bruce Tanner,
chief financial officer, said Lockheed’s recent deals would add around $750 million to sales this year, while higher production of its F-35 fighter jet would help the return to organic growth in 2016 and beyond.

The pace of growth hinges on whether lawmakers repeal the sequestration cuts that would require another 10% across-the-board cut in Pentagon spending in fiscal 2016. The Pentagon is expected to present a budget on Feb. 2 calling for around $530 billion in spending, some $30 billion above the level required by the automatic cuts known as sequestration.

While industry executives, Pentagon officials and lawmakers all agree that sequestration is an inefficient way to address budget challenges, there is no widespread agreement on how to remove the mechanism.

Lockheed has benefited from its positions on programs such as the F-35 that have been relatively protected from budget cuts, and is also bidding on two of the largest upcoming contract awards this year. The planned new Air Force bomber program is expected to cost around $80 billion, while a replacement for the Army’s Humvee trucks is forecast to cost more than $30 billion.

Ms. Hewson said its contender for the truck deal started life through technology acquired in a small acquisition, and defended Lockheed’s recent record on internal research spending, which was around 1.5% of sales last year, well below that of technology companies.

Research-and-development spending by the big five U.S. defense contractors has halved over the past five years, irking a Defense Department that wants contractors to take on more risk and invest more to counter growing threats from China and Russia.

“It’s not as much a percentage of sales as an efficient expenditure of dollars,” she said, noting that much of Lockheed’s research came via indirect routes such as joint ventures.

Lockheed reported fourth-quarter profits of $904 million compared with $488 million a year earlier, with earnings rising to $2.82 a share from $1.50 a share. Full-year profit rose to $11.21 a share and is forecast at $10.80 to $11.10 a share in 2015.

Some $250 million in sales from recent acquisitions helped full-year revenue rise to $45.6 billion following declines in 2012 and 2013. Sales and orders this year are expected to be in the range of $43.5 billion to $45 billion.